If you are currently manufacturing your products in China, but find the tariffs imposed by the United States are hurting your bottom line, you may consider moving your production out of China to another country like the US or even possibly Mexico. Moving production from one location to another is always challenging, even more so when moving from across the Pacific. There are many details that need to be adhered to, and not following or paying attention to these details could be costly down the road. The following article details information you may need to know when moving out of China, and what some of the best manufacturing options for your company may be, like manufacturing in Mexico.

1. Moving Your Manufacturing
Out of China
NovaLink Nearshore Manufacturing

2. Intro
If you are currently manufacturing your products in China, but find the tariffs imposed by the United
States are hurting your bottom line, you may consider moving your production out of China to another
country like the US or even possibly Mexico.
Moving production from one location to another is always challenging, even more so when moving
from across the Pacific. There are many details that need to be adhered to, and not following or
paying attention to these details could be costly down the road. The following article details
information you may need to know when moving out of China, and what some of the best
manufacturing options for your company may be, like manufacturing in Mexico.
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3. Why are companies moving out
of China?
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4. Trade War with The United States
For many companies, the primary reason is the
current trade tariffs being levied against China
by the United States. On July 6, 2018, in a
separate move aimed at China, the Trump
administration set a tariff of 25 percent on 818
categories of goods imported from China worth
$50 billion.
In response to these tariffs, many countries and
their respective businesses, not just in the
United States, choose to relocate their
manufacturing operations from China to a new
location, such as Mexico. Even firms in China,
in an attempt to avoid the 25% tax, are moving
from their home country.
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5. Why Sourcing for Your Materials
is Important
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6. Finding Materials
is Difficult
According to the manufacturing blog
Quality Inspection, finding materials
for use in manufacturing in China or by
Chinese firms is proving difficult:
“I used to believe that Chinese manufacturers were great at
sourcing their own materials/components. And yet… After
reviewing the way they manage their procurement, I have seen more
mismanagement than maybe in any other function (production,
quality, etc.). There is a strong focus on getting a deal with the
lowest price, rather than securing the lowest ‘total cost of
ownership’. This has several implications that are highly detrimental
to quality. It is a well-known fact that people who screen and select
suppliers often get a commission ‘under the table’. A Chinese
component supplier routinely asks “what is your commission, so
that I know what price to offer?”
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7. Affordable Labor
Salaries for the labor force in China is
also becoming a major issue for
manufacturers looking to produce
their goods at the best rate possible.
According to CNBC, turns out that
“made in China” is not so cheap
anymore as labor costs have risen
rapidly in the country’s vast
manufacturing sector.
“Chinese factory workers are now getting paid more than ever:
Average hourly wages hit $3.60 last year, spiking 64 percent from
2011, according to market research firm Euromonitor. That’s more
than five times hourly manufacturing wages in India, and is more on
par with countries such as Portugal and South Africa. As China’s
economy expanded at breakneck speed, so has pay for employees.
But the wage increase has translated to higher costs for companies
with assembly lines in China. Some firms are now taking their
business elsewhere, which also means China could start losing jobs
to other developing countries.”
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8. What You Need to Know About
Leaving China
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9. Location is the most important factor
The most important consideration for moving your business out of China to either the US or Mexico,
would be location. The cost of your production for you operations and the location for your supply
chains will become very important. As one of the main considerations for many companies moving out
of China is proximity, finding the best location closer to your market will need to be a priority.
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10. Location decision
should be made
well in advance of
leaving China
Salaries for the labor force in China is
also becoming a major issue for
manufacturers looking to produce
their goods at the best rate possible.
According to CNBC, turns out that
“made in China” is not so cheap
anymore as labor costs have risen
rapidly in the country’s vast
manufacturing sector.
“Finding a new supplier or location to operate a factory is a
significant business decision and it should be treated as such.
Some of our clients are interested in finding new suppliers and
some want to start up an entire new factories themselves. We need
to clearly distinguish between the two. In sourcing, for example, the
range of what can and will be done is huge, from a simple purchase
of a fungible commodity product all the way to purchasing high
tech electronics where the factory is expected to provide
substantial engineering input. Some of our clients are highly
focused on costs, while others are highly focused on quality.
Figuring all this out for each client is usually complicated and time
consuming and the resulting project is quite different depending on
the client’s goals and the result of the analysis.”
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11. Examine Your BOM
It is also important to closely examine
the BOM of your operation before
leaving China to ensure you are able to
get all the materials you need for
production outside of China. This is
crucial if you want to avoid paying the
tariff tax on your materials, as certain
components of a finished product, raw
materials originate or processing of
the materials takes place or comes
from China, you will most likely still
incur the tariff fee.
According to the Sourcing Journal: “To avoid this, companies need
to take a holistic look at their sourcing strategy with all relevant
factors considered. Often this means examining the product’s Bill of
Materials (BOM), which gives a complete and hierarchical listing of
any raw materials, sub-assemblies, components, or ingredients and
the quantities and costs used in the product. Companies must then
check the materials they use against tariff specifications to ensure
the costs they’re trying to avoid by sourcing from China are actually
avoided. In some cases, shifting production from China could
actually yield a net increase in costs.”
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12. You must have ALL of your product made
outside of China to avoid paying the tariff
A common misconception is that because you have manufactured most of your product in a country
other than China, with only a few components still made there, you can avoid the tariff. This is
incorrect: If you have parts made and then shipped somewhere else for manufacturing, you will still
have to pay a tariff. In fact, doing this might not only keep your products subject to the tariffs on
Chinese products, trying to pass a finished product as manufactured in another country with Chinese
components is illegal and the company making the manufacturing can be subject to stiff financial
penalties and even jail time.
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13. “…shipping a Made in China product to Taiwan or Vietnam or Thailand or
really anywhere else in the world before shipping it to the United States
will somehow render that product to no longer be considered to have
been made in China for US tariff purposes. If this is all you do we can
guarantee your product will still be made in China and you will almost
certainly be hit with the full force of the tariffs and with a lot more. And
yet, all the time we hear from our own clients and we see on the internet
that this fact is not widely understood. The fact that many Chinese
factories encourage this sort of illicit transshipping by insisting that it is
either “perfectly legal” or “will never be detected” obviously does not
help.”
- China Law Blog
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14. Alternative to
China
Manufacturing
Mexico
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15. Manufacturing in
Mexico
If you are one of the companies that
are looking for a viable alternative to
manufacturing in China, you may want
to consider changing your company’s
base manufacturing to Mexico.
The new USMCA trade agreement between Mexico, Canada and the
United States that is ready to be ratified by the end of this year will
provide lower tariff rates and reduced duty rates between the three
nations, which in turn will allow manufacturing goods imported
between them easier and cost effective. Some other benefits and
points to consider:
● There are no tariffs for products made in Mexico and
imported into the United States that meet USMCA rules of
origin requirements.
● Manufacturing goods in Mexico also means lower shipping
time for goods to get into the United States, as well as lower
average cost of shipping.
● For companies that are getting established, starting
operations in Mexico is almost half the time it takes to begin
manufacturing operations in China.
● Mexico, like China, has a highly-skilled and productive labor
pool to scale up your operations as needed.
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16. Do you need a nearshore
manufacturing partner or solution
for your business? Contact
NovaLink today: 956-621-7362 or
visit our website:
www.novalinkmx.com
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